Fixed annuity

Guaranteed annuities

Essentially, it's an insurance product

At retirement, you need to purchase an annuity. And you have two choices: either a living annuity or a guaranteed annuity. In our previous post, we spoke about LIVING annuities. If you missed it, please go back and read that first so you can get ALL the information on ALL the options available to you. This post though, is dedicated to GUARANTEED annuities.

Essentially, it’s an insurance product. You give your retirement savings over to an insurance company and they guarantee to pay you an income for the rest of your life. If you’ve been employed and you earned a salary every month, this is very similar. You don’t need to worry or even think about what returns the market is giving, your income is set and guaranteed. 

Let this just sink in – this salary will be paid to you FOR THE REST OF YOUR LIFE. If you live to 120 years, well – well done! You’re still receiving a salary.

But now you’re probably thinking about the other side… what if you die at 70? The insurance company keeps all the retirement savings you gave to them? Yes… and No? There ARE options available that ensure your money will continue being paid to your partner and beneficiaries after you die… we unpack those in detail in the video that follows.

We also discuss a very important number to look out for when purchasing a guaranteed annuity: your starting income:

If you live to 100...

The nice thing about a guaranteed annuity is that you just never need to worry. No matter what happens in the markets, no matter how long you live, you’ll never be without an income.

This is an important consideration because essentially the need to make complex financial decisions is taken out of your hands. We should never underestimate the risk of getting dementia in old age. Or our partner getting dementia. That limits our ability to make complex decisions.

Now that you understand what a guaranteed annuity is, the next thing to consider is that there are different types of guaranteed annuities… that’s what we’ll be covering in the next post.

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More in this series on retirement options

In case you missed it, see our previous posts in this series:
  • Preparing for retirement – This is the first post in a short video series covering everything you need to know to start preparing for retirement!
  • How much cash do I take? – The first question you’ll ask at retirement is “how much cash do I take”? Let’s help you answer that with this 4 minute video.
  • Living annuities – With living annuities, the most important thing is that you understand the implications of how much you’re withdrawing each year.
Or if you want to jump ahead...
  • Pros & Cons: Living vs Guaranteed – With a living annuity you have less certainty but more flexibility. With a guaranteed annuity you have more certainty, but with some limits. 
  • The blended annuity – A blended annuity is a combination of a living annuity and a guaranteed annuity. The idea is to determine what your essential expenses are.
  • Your retirement options – Let’s recap some of the key points to ensure you understand all your retirement options and make the best decisions with your money.

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About the Author

I am passionate about helping people understand their behaviour with money and gently nudging them to spend less and save more. I have several academic journal publications on investor behaviour, financial literacy and personal finance, and perfectly understand the biases that influence how we manage our money. This blog is where I break down those ideas and share my thinking. I’ll try to cover relevant topics that my readers bring to my attention. Please read, share, and comment. That’s how we spread knowledge and help both ourselves and others to become in control of our financial situations.

Dr Gizelle Willows

Dr Gizelle Willows


PhD and NRF-rating in Behavioural Finance